Low Surface Inventory Could Hamper Microsoft’s Q4 Hardware Results

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Demand for Microsoft’s new Surface 2 and Surface Pro 2 computers is outstripping supply, with shortages being noted online and off.

Over the past few days, reports have cropped up that stock of the new Surface 2 and Surface Pro 2 tablet hybrids has become quite tight. A quick search around the Internet confirms this. Mashable wrote about the lack of stock a few days ago, with one Best Buy employee telling the publication that the devices were “extremely popular”.

That article noted low Amazon supply, and tweets from annoyed customers asking when the devices would be back in stock. Not a single Best Buy near me has Surface 2 inventory in stock, according to the company’s website.

Today, the online Microsoft Store itself ran out of devices as well, with Neowin noting that “all of the second generation Surface tablets are ‘out of stock’, one week before Christmas.”

What’s going on? Two things, I think: Demand for Microsoft’s hardware is up, and supply is down. After taking a massive, and deathly embarrassing $900 million charge for building too many first generation Surface devices, Microsoft seems to have built fewer this time around. However, whatever its projected number was, it was too low.

Not having enough of a product is a fine problem to have, but it’s a real issue for Microsoft given how high the stakes are for its new line of devices. With the company now reporting Surface revenue each quarter, we have a public measuring stick for its performance as an OEM. After its prior mistakes with Surface, Microsoft wants the first revenue figure for its new devices to be as large possible.

By underbuilding Surface devices, Microsoft is hampering its ability to dial up Surface revenue, something that investors may chide it for. After all, mis-estimating demand for a second year running could be taken as indicative of a certain immaturity in the company’s work as an OEM.

Put another way: Surface revenue is a key metric for Microsoft’s progress as a device company, half of its new business model. And it’s a cutthroat business without shooting yourself in the foot.

Taken all together, Microsoft’s efforts to be a ‘devices’ company appear to be coming together. Windows Phone has never been stronger, the Xbox One sold out, and now Surfaces are hard to come by. That’s good. But watching Microsoft get in its own way with the Surface line (again) is somewhat painful.

Consumers can buy other Windows 8.1-based devices of course, perhaps boosting Microsoft’s OEM partners, but what the company wants is a Surface on every desk, and not to run out a week before Christmas.

In its most recent quarter, Microsoft had $400 million in Surface revenue. So, in the quarter before new devices and the holiday season, Microsoft’s Surface top line sat 20% under a half billion dollars. How much revenue can Surface drive in the current quarter? Your guess is as good as mine, but we know one thing: Whatever number Microsoft reports will be smaller than it could have been if it built more of the darn tablets.

What a difference a year can make.

Top Image Credit: Flickr